Electrosteel Castings Limited (ELECTCAST) Q4 FY23 Earnings Concall Transcript

Electrosteel Castings Limited (NSE: ELECTCAST) Q4 FY23 earnings concall dated May. 18, 2023

Corporate Participants:

Madhav Kejriwal — Whole-Time Director

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Pankaj Poddar — Chief Marketing Officer

Gaurav Somani — Joint General Manager-Finance

Analysts:

Diwakar Pingle — Ernst & Young LLP — Analyst

Aashav Patel — Molecule Ventures LLP — Analyst

Vikash Singh — Phillip Capital — Analyst

Karthik Muthuswamy — Trident Advisors — Analyst

Rajesh Agarwal — Moneyore Capital Advisors — Analyst

Saket Kapoor — Kapoor and Company — Analyst

Jayesh Lad — Centra Advisors LLP — Analyst

Chetan Phalke — Alpha Invesco Research — Analyst

Sriram R — Private Investor — Analyst

Vijay Agarwal — Federal Bank — Analyst

Miraj — Merion Capital — Analyst

Kumar Keswani — Strategic Advisory — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q4 FY ’23 Earnings Conference Call of Electrosteel Castings Limited. [Operator Instructions]

I now hand the conference over to Mr. Diwakar Pingle from Ernst & Young LLP. Thank you and over to you, Mr. Pingle. [Operator Instructions] Diwakar sir, please go ahead.

Diwakar Pingle — Ernst & Young LLP — Analyst

Sorry. Yeah, good afternoon, everyone, again, I think sorry for the call drop. Welcome you to the earnings call of Electrosteel Castings Limited for Q4 and FY ’23. Today we have with us the management represented by Mr. Madhav Kejriwal, Whole-time Director; Mr. Ashutosh Agarwal, Whole-time Director and Chief Financial Officer; Mr. Pankaj Poddar, Executive Director and Chief Marketing Officer; and Mr. Gaurav Somani, who is the Joint General Manager of Finance.

Before we started, I would like to remind you that the remarks today might include forward-looking statements and actual results may differ materially from those contemplated by those forward-looking statements. Any statements we make on this call today is based on our assumptions as on date and we have no obligation to update the statement as a result of new information or future events.

I would now like to invite Madhav Kejriwal, the Whole-time Director of Electrosteel Castings to make his opening remarks. Over to you, Madhav.

Madhav Kejriwal — Whole-Time Director

Thank you. A very good afternoon to all. And on behalf of the entire management team of Electrosteel Castings, a very warm welcome to the company’s Q4 and FY ’23 earnings con call. Before I get started, I’ll take a quick minute to introduce myself. I am Madhav Kejriwal, I’m part of the promoter group and I’m currently overlooking the sales and marketing functions of Electrosteel Castings. My journey with Electrosteel began in 2014 as a management trainee on the shop floors, the Jharkhand steel plant. After gaining some understanding of the production, I joined the sales and marketing team, where I was part of the team which was successful in penetrating the company’s wire rod product reach in the domestic markets. As on 2019 [Phonetic] I took over as the Executive Director of Srikalahasthi Pipes and since have gone on to look over the entire sales and marketing, both domestic and export.

Before we go into the company’s performance, and business, I’d like to introduce Electrosteel’s business model for the benefit of the market participants who are listening into us for the first time. Electrosteel has six decades of rich experience and the pioneer of ductile iron pipes and fittings in India. We have a rated capacity of 6.8 lakh tonnes per annum, which makes us the industry leader. We also have a very strong brand recall in the export markets. DI pipes and fittings are laced with internationally acclaimed certificates, including international global certificates.

ECL has a presence in over 110 countries and five continents and we have managed to make good deep inroads in the export market with presence in Western Europe, U.K., USA, Middle East, Asia and Africa. The company has a well diversified product portfolio, which includes ductile iron pipes, ductile iron fittings, ductile iron flange pipes, and restrained joint pipes. Additionally, ECL manufactures cast iron pipes, metallurgical coke, sponge iron, cement, ferro silicon, pig iron and power. We have five technologically advanced integrated manufacturing units in Khardah, Bansberia, Haldia, Elavur and Srikalahasthi. The companies continues to meet and win domestic and export customers trust owing to a strong R&D framework with its quality right the first time and robust quality management system proposition.

We at Electrosteel command a leadership status, both in the domestic market with 25% market share and 65% share of exports from India with strong entry barriers to the industry market dominance, promoter enterprise, one-stop solution provisions for water infra needs, R&D focused back, huge industrial tailwinds in domestic as well as exports has made Electrosteel amongst the preferred partner for ductile iron and the light products. More than 20,000 water supply projects have already been implemented in India and abroad with DI pipes and fittings made by Electrosteel Castings.

Moving onto Electrosteel Castings FY ’23 performance. It gives me immense pleasure to share with all our stakeholders that the company has recorded its highest-ever top line of INR7,013 crores, registering a 37.6% year-on year growth in FY ’23. This has been fueled by a domestic business growth of 41% and an export growth of 29%. Our volumes stood at 710,000 tonnes, which is a 19.5% growth year-on year. The flagship program of Honorable Prime Minister, the Jal Jeevan Mission, which is — which aims to connect every rural household with tap water connections has achieved up to 61% of its nationwide targets, around 8 crore rural households have received safe drinking water till FY ’23, of India’s total — 19 crore rural households.

ECL continues to be amongst the key beneficiaries of JJ and schedule [Phonetic] due to accelerated spending by the government for meeting its Har Ghar Jal target in 2024. Additionally, this year we’ll continue to benefit from the government’s increasing attention towards the country’s water infrastructure needs with initiatives such as Jal Jeevan mission, AMRUT 2.0. ECL has also undertaken capital expenditure in two phases to meet the growing demand of water infrastructure. Phase 1 was completed in August 2021 and is operating at 100% and Phase 2 is under progress.

The ductile iron pipe industry, is the sunrise sector, as it is globally accepted and is best-suited pipe for water transportation and sewage, DI has an inherent edge on other pipes as it has a long shelf-life of 70 years to 90 years. It has an easy installation process, low maintenance costs, greater tensile strength along with the ability to handle both internal and external pressure. Keeping these things in mind, the company is seem to be in a sweet spot and is poised to benefit from the growing water infrastructure spend both in domestic and exports markets — export markets.

I would now like to hand over the floor to Mr. Ashutosh Agarwal, the Whole-Time Director and CFO for taking through the Electrosteel Castings FY ’23 financial highlights.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Thank you, Madhavji. Good evening, and a warm welcome investor certainty planning in Electrosteel Castings Q4 and FY ’23 results discussions. I would like to start our discussion in four parts, part one is Q4 results and performance of the company. Company recorded its highest ever quarterly results and EBITDA. ECL total income grew to — grew by 13% year-on year to INR1,786 crores, owing to a strong and DI pipe volume growth of 8.4% during the quarter. From the reported EBITDA of INR433 crores, EBITDA margin stood to 13.1%. Margin was lower on account of higher prices of coking coal. PAT INR201 crores. PAT was impacted due to higher increased cost during this quarter on account of increase in interest rates and higher utilization of funds due to steep rise in raw material prices.

Second portion of my statement is about the full-year performance of the company. Company registered its highest ever revenue during the year and EBITDA and PAT also. ECL total income was 38% year to year — year-on year to INR7,013 crores due to strong DI pipe volume growth of 20% additionally domestic and export grew by 41% and 29% respectively. EBITDA grew by 14% to INR819 crores. EBITDA margin was 11.7%. PBT was INR433 crores. PAT was INR335 crores.

About the balance sheet highlights, the net-debt to equity was 0.43 times as on March ’23. The ROCE and ROE is 13.1% and 11.3% respectively as on 31st March 2023. I would like to highlight something about the capex plan also. Company plan to ramp up the existing capacity of 6.8% — 8 lakhs tonnes to 9 lakhs tonnes by the year 2025 in order to fuel the cost capex plan, ECL has incurred — ECL has incurred a capex of INR610 crores out of that INR170 crores already spent and INR440 crores, is about to be spent in two years’ time. The company is sitting on the cash balance of around INR600 crores as on 31st March 2023.

With this, I would like to open the floor for the question-and-answer session. Thank you very much.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Aashav Patel from Molecule Ventures. Please go ahead.

Aashav Patel — Molecule Ventures LLP — Analyst

Sir, congratulations on a very good set of numbers. Sir, my question is regarding the — our ongoing dispute petition, which was filed regarding one of the old block investments done by us earlier. So in the past, we have never mentioned in notes to accounts that about the specific conclusion coming through, but recently as you have mentioned that government has allotted that particular mine — Parbatpur mine to JSW Steel. So now do you see some more visibility in terms of the dispute getting resolved. If yes, what would be the new timeline, as per you, for the same? And what amount are we expecting?

Madhav Kejriwal — Whole-Time Director

Good afternoon, Mr. Aashav. So first of all, just to clarify, this is not a dispute. The coking coal mine got reallocated in 2015 and since then we have been waiting for the compensation to commence. So as rightly said, the mine has been now — mine was put for auction and JSW Steel has been declared as the winner. So as per the rules, the new allottee should pay to be prior allottee. So now things are moving well and as was briefed in the last call as well that the mine denominated authority had appointed a valuer to conduct the valuation of the mine. So, bills and everything have been verified. And now I think it’s a matter of time and we are hopeful to get some positive response. So once that comes in, we will definitely inform everyone.

Aashav Patel — Molecule Ventures LLP — Analyst

Sure. So before this compensation is cleared, yes, we cannot go ahead and that mine, right, is that correct understanding?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Yes, your understanding is correct.

Aashav Patel — Molecule Ventures LLP — Analyst

And sir, regarding — I understand that independent valuation would be assigned. But what would be our expectation from the company side, how much are we expecting from the same?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

So there’s no point of expectation because as per the rules, whatever capex that we have incurred and is appearing in the audited annual report, the amount that needs to be paid. So if you go by that logic, whatever is coming in the annual report is supposed to be received by us.

Aashav Patel — Molecule Ventures LLP — Analyst

Sure. But it won’t be less than that, even from the — even if the valuation are — independent valuation are assigned the value lower than that.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Mr. Aashav, we cannot jump on that because since this is a matter with the Ministry of Coal and the government is involved, so you can understand that we will have to go by what decision is taken by them. Having said that, we’ll have to wait for some more time when we have already waited for seven years, we’ll have to wait for some more time to get the clarity.

Aashav Patel — Molecule Ventures LLP — Analyst

But do you feel sir, in FY ’24 itself, steel can — can we expect the proceeds in this financial year itself?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Yeah, we are hopeful that it should happen this financial year.

Aashav Patel — Molecule Ventures LLP — Analyst

Sure. And sir all the best for the same. Sir, my last question is basically what sort of steel inventory do we generally maintain on our books. So just to — in order to understand more in terms of our gross margin bit?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

So Mr. Aashav, see last two years, our working capital requirement has gone up and it’s mainly on account of increase in capacity as Mr. Madhav had pointed out earlier that we had increased the capacity by 1,000 tons in August 2021. So in last few years, capacity — because of capacity, the inventory position has gone up. Also the second point is that the commodity prices had gone up because of which the value of inventory had gone up. But if you see from FY ’22 to FY ’23, our inventory has come down by INR150 crores, in spite of volumes going up by 1 lakh tonnes. And as far as the policy is concerned, we have two main raw materials, one is coking coal and one is iron ore.

So coking coal, we import from Australia and we have to maintain a significant inventory just to ensure that there is no problem in production process. So we generally maintain four months of inventory of coking coal and iron ore can vary from two to three months, but coking coal can come down to three months also gradually, we aim to bring it down to three months.

Aashav Patel — Molecule Ventures LLP — Analyst

Sure, sure. So sir, given the fact that coking coal has been correcting oscillates, it is down from almost $1,400 to around $250 to $275, so can we expect. Assuming, even if we hold one quarter of inventory, Q2 onwards, our gross margins should be significantly better than how — at what point we are sending right now?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

See as far margins are concerned, we are hopeful that margins will improve from here on, but how much we cannot comment on that. And you’re right, the coking coal prices have corrected and have moderated in last one month, two months or so and that is why there will be a dual effect. One, the margins would improve. And secondly, cash flows would also improve, because inventory would also come down. But yes, from maybe second half — second half or maybe the remaining nine months would be in a better shape, much better shape.

Operator

Thank you. [Operator Instructions] The next question is from the line of Vikash Singh from Phillip Capital. Please go ahead.

Vikash Singh — Phillip Capital — Analyst

Good afternoon, sir.

Madhav Kejriwal — Whole-Time Director

Good afternoon, Mr. Vikash.

Vikash Singh — Phillip Capital — Analyst

Yeah, so my first question related to the competitive intensity, such one-off front will most likely would start very soon, which is very closer to Srikalahasthi plan. So do you — how do you see that this is impacting your margins or is there enough orders for both the players in the South to enjoy a good order book and margins. So just wanted some thought process on that?

Madhav Kejriwal — Whole-Time Director

Sir, there is unfilled demand in the market at the moment and the same is applicable, specifically for the Southern market. The coming up of the [Indecipherable] plant does not seem to pose any form of issue for us in terms of our margins and our market presence.

Vikash Singh — Phillip Capital — Analyst

Understood, sir. Sir my second question pertains to our margin, if I look at the quarter-on-quarter basis, basically it’s still kind of flattish. So just wanted to understand since the commodity prices, especially coking coal has fallen significantly, when do we expect that to reflect? And our understanding was that the since spike for the fixed margin contract. So six months back, when coking coal prices or the pig iron index was pretty high, you would have got a very high margin orders which you execute now, should have given you very high margins. So just wanted to understand this lead-lag effect, so then it would start reflecting and when do we expect our margin to pull up?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Mr.Vikash, so see, the commodity prices were up and because of which the realizations, the cost was passed on, the higher cost was passed on and hence realizations were up. So if you see, we have been able to maintain our absolute numbers. We have been able to report higher EBITDA, in terms of margins, it’s very obvious that it will come down, it will soften a bit compared to the previous years when the denominator was lower. So this year denominator has increased because obviously margins have got impacted. Going forward, till the coking coal prices have moderated, we feel that margin would start moving up again.

Vikash Singh — Phillip Capital — Analyst

Understood. Sir, did our mix — our order mix basically has a fixed price order, we have also started to shifting to a kind of some portion variable considering the last year, had a very bitter experience. So just wanted that how we are booking the new orders now?

Madhav Kejriwal — Whole-Time Director

So the industry trend remains to be on fixed prices, please.

Operator

Thank you. [Operator Instructions] The next question is from the line of Vijay Agarwal from Federal Bank Limited. Please go ahead. [Operator Instructions] There is no response. We move on to the next participant. Next question is from the line of Karthik Muthuswamy from Trident Advisors. Please go ahead.

Karthik Muthuswamy — Trident Advisors — Analyst

Yes, thanks for taking my question.

Operator

Karthik, you are not audible.

Karthik Muthuswamy — Trident Advisors — Analyst

Yeah, can you hear me now?

Operator

Little better.

Karthik Muthuswamy — Trident Advisors — Analyst

Yeah, thanks for taking my questions. How do you look at this benign supply panning out over the longer period [Indecipherable] because when I look at 2009 —

Operator

Karthik, sorry to interrupt you, but your voice is not clear at all.

Karthik Muthuswamy — Trident Advisors — Analyst

Okay.

Operator

Is it possible for you to speak through the handset.

Karthik Muthuswamy — Trident Advisors — Analyst

Yeah. Can you hear me now?

Operator

Yes.

Karthik Muthuswamy — Trident Advisors — Analyst

So how do you look at demand/supply over a 10-year period? Because if I look at your numbers in say 2009, you used to make around 2.5 lakh million tonnes of DI pipes, now you’re heading towards 9 lakh tonnes. And if I were to look at capacity additions being announced there have been multiple players wanting to enter the space in the Western region, couple of new players have announced, couple of players in the East wanting to put up new capacities. And if you look at places like — if you look at programs like Jal Jeeven Mission, you guys say 61% is done. So if you have a structural overcapacity the industry is heading to, not in the near-term, but if you take a 10-year view.

And in that context, why are we also adding capacity or you think despite the completion of the Jal Jeeven Mission, do you think will be enough orders coming in, given particularly the state of state government finances this — these kind of large capacity additions over the last 10 years and the ongoing capacity addition can be sustained.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Sir, the way we look at it is that India is at the cusp of infrastructure boom and if you see any past trend of countries or continents, which have seen a similar trend, you will see that the sort of demand surge loss for 10 years to 15 years easily. Considering India’s population and land mass, we don’t see India moving towards any different way. In fact, it will probably be a bit more exaggerated in the case of India. Considering this, even with the capacity coming in and considering the market dominance and leadership that Electrosteel has, it is — but it seemed like a obvious decision for us to go ahead and increase capacity.

Karthik Muthuswamy — Trident Advisors — Analyst

Understood. Thank you.

Operator

Thank you. Our next question is from the line of Rajesh Agarwal from Moneyore. Please go ahead.

Rajesh Agarwal — Moneyore Capital Advisors — Analyst

Hello.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Yeah.

Rajesh Agarwal — Moneyore Capital Advisors — Analyst

Hello. Sir my first question is, why is this difference in profitability between standalone and consol, what is the major item for that?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Mr. Rajesh, see in consolidation, we have around 10 overseas subsidiaries, whose numbers are getting added into our consolidation accounts. And these subsidiaries are mainly trading up.

Rajesh Agarwal — Moneyore Capital Advisors — Analyst

Okay.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

So the manufacturing — they’re not the manufacturing arms, but they are the trading arms. So most of the exports that is happening from Electrosteel Castings India is happening to subsidiaries, which is in turn being sold in the overseas markets.

Rajesh Agarwal — Moneyore Capital Advisors — Analyst

Okay. So are the subsidies making losses? Because net profit has come down in consol.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

So subsidiaries are in fact profit-making subsidiaries. And it’s just because of the accounting treatment that the profit and the consolidation part is appearing to be lower than the standalone numbers.

Rajesh Agarwal — Moneyore Capital Advisors — Analyst

Okay. So it will always like that only?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Yeah, it is always will like that only, whatever contracts [Phonetic] we are having with subsidiary companies with the holding companies, it has to be cancelled, like subsidiary company, giving dividend to the holding company that is getting cancelled, that’s why they —

Rajesh Agarwal — Moneyore Capital Advisors — Analyst

Okay. For our purpose, we always have to go by consol earnings.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Standalone better.

Rajesh Agarwal — Moneyore Capital Advisors — Analyst

Standalone better?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Yeah.

Rajesh Agarwal — Moneyore Capital Advisors — Analyst

Okay. But the market — the valuations and everything will be on the consol?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

No, no, it will be always on a standalone basis only.

Rajesh Agarwal — Moneyore Capital Advisors — Analyst

Standalone basis.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

It will see and visit consolidated figure also, but standalone is the better proposition.

Rajesh Agarwal — Moneyore Capital Advisors — Analyst

Okay. And sir, what is outlook growth — volumes growth double-digit this year?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Mr. Rajesh, we have Mr. Pankaj Poddar with us, is the educated Director and Chief Marketing Officer, he has been with the company for 25 years and he has taken exports from almost 0 to INR1,500 crores where we are now. So I’ll — he will be the best person to address this query. I’ll hand over to him.

Pankaj Poddar — Chief Marketing Officer

Okay. Well, Mr. Rajesh, the main issue here, like when you say that whether there will be growth, there absolutely will be growth because of two major reasons. That is that the Indian market because of the JJM scheme and the AMRUT scheme is moving, the export markets are also doing. And other than that, our capacity is going up. So because of these reasons, we will definitely be seeing strong growth numbers going forward.

Rajesh Agarwal — Moneyore Capital Advisors — Analyst

Are margins better in export orders or local orders — domestic orders?

Pankaj Poddar — Chief Marketing Officer

So, margins are significantly better in export than in domestic.

Operator

[Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor and Company. Please go ahead.

Saket Kapoor — Kapoor and Company — Analyst

Yes, [Indecipherable] sir, and thank you for this opportunity. Firstly sir, my — an observation from my side, firstly, thanks to the representation from the promoter side. Madhavji, for joining the call and addressing the investors. So this was a long pending request from the investing community and Q4 adhering to the claim and we hope for the continuity of the same. My first question to you only, sir, firstly sir to take into account the shareholder value creation part. If you could give us some understanding of what are the costs that are still left or in turn — things which are still pending for getting the right valuation for the company, over a period of time investors have not been able to realize the right value for the investment that they had made both in Electrosteel Castings as well as for Srikalahasthi Pipes.

However, they have supported, the investors have supported for the merger that has gone through two years ago, but the valuations have remained more or less the same over — if you take a longer period of time. So this is the first observation from the investing community that the right valuation market is not giving us the right valuation. So would request the team to look into the areas. And the reason why we are not valued, correct me if I may use the term so.

And now coming to my question part, firstly, on the capacity augmentation from seven to nine, if you could give — how are the capacities going to kick in from seven to nine, which year, what would be the capacity additions?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

So the capacity enhancements for Phase 2 is going on and we are hoping to see that come into play around the mid of the next financial year.

Saket Kapoor — Kapoor and Company — Analyst

For this financial year, there will be no capacity addition.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

No sir, this year we will be spending the money and its effect will come into play next financial year, please.

Saket Kapoor — Kapoor and Company — Analyst

Sir for this year, there will be improvement on margins only on account of the efficiencies that will kick in, no volume growth, because we are already running at above 100%.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Yes, sir.

Saket Kapoor — Kapoor and Company — Analyst

Okay. And when we look at now for the finance part, when we look at the finance cost line item that has gone up significantly. So if you could give us the breakup on how much is on account of — on account of finance paid to loans to banks and other cost also. And the key reasons for the same and the net debt number also?

Gaurav Somani — Joint General Manager-Finance

Yeah, Saketji, Gaurav here. So total debt has actually come down since FY ’22. It has come down by around INR300 crores. And our net debt figure as on 31st March stands at INR1,800 crores. Interest has gone up to INR272 crores compared to INR180 crores, INR185 crores in FY ’22. The major two reasons for this is, one, the rise in interest rates, which all the companies have paid, the repo rates had gone up 2.5%. And the international rates which are [Indecipherable] rates have gone up by around 4.5%, so we had an impact of the rising rate.

And number two is the working capital requirement has gone up because last year if you recall, coking coal prices had start given payment $5,600 plus. So in spite of our total debt coming down from 31st March ’22 to 31st March ’23 in between the average utilization had gone up. And because of these two factors, the interest burden for the year had gone up. And as I mentioned in my earlier call also, based on the — what we’re seeing on the market movement on the T-bill and the 10-year G-sec and RBIs decision to stay put on the repo rate, we feel that this has peaked out and so as our working capital requirement. And going forward this should come down.

Saket Kapoor — Kapoor and Company — Analyst

Sir just a follow-up there. INR1,800 crores is the net debt number for FY ’23?

Gaurav Somani — Joint General Manager-Finance

Right.

Saket Kapoor — Kapoor and Company — Analyst

And what would be our endeavor for the next year, sir and what are the current maturities and if you could give us some color?

Gaurav Somani — Joint General Manager-Finance

Next year FY ’24, we have around INR160 crores of term-loan repayments scheduled and after that following here, we have around INR250 crores of long-term repayment schedule. So these are scheduled repayments and further movement in tact would depend on the working capital.

Saket Kapoor — Kapoor and Company — Analyst

Okay. So any number you can share, while we are looking to end the nature, it is too early right now.

Gaurav Somani — Joint General Manager-Finance

Correct. So no point of going thus far, but obviously since in this year, we have reduced our debt by INR300 crores in spite of so challenging times. So you can understand that the idea is to bring down the debt.

Saket Kapoor — Kapoor and Company — Analyst

Sir, one more question I have on the bookkeeping part and —

Operator

[Operator Instructions] Next question is from the line of Jayesh Lad from Centra Advisors. Please go ahead.

Jayesh Lad — Centra Advisors LLP — Analyst

Good afternoon, sir. Firstly congratulation on such great numbers. My question was regarding capex. So the Phase 2 capex which has been going on. My question was exactly at which facility is it going on? And also by what time can we expect the full capacity to come online?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

So we are having expansion in both the locations that is Srikalahasthi which is in the South India, where the main capex is happening, where we are increasing the capacity by around 150,000 tonnes. So right now we are at 4 lakh tonnes which will go to 5,50,000 tonnes. This will happen by mid of next financial year. And a small increase is happening in our Eastern unit. So there will be at around 350,000 tonnes, so altogether in the next 18 months approximately, we should be at close to 9 lakh tonnes.

Jayesh Lad — Centra Advisors LLP — Analyst

Sure. Thank you, sir.

Operator

Thank you. Next question is from the line of Chetan Phalke from Alpha Invesco Research. Please go ahead.

Chetan Phalke — Alpha Invesco Research — Analyst

Yeah, thank you for the opportunity, sir. Sir my question is with respect to our exports. So this year I think our exports have gone up from INR150 crores to — especially to U.S. our exports have gone up from INR150 crores to INR200 crores plus. So what is the reason in this uptick? And if you can just help us understand the dynamics of the U.S. demand-supply when it comes to DI Pipes and who are we competing against in the U.S. markets? Because I understand the players in U.S. markets, they are making DI pipes, via the scrap or the [Indecipherable]. So what is the differential in their cost of production versus our cost of production, if you can help us understand?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Well, regarding the demand in the U.S. market, the U.S. is one of the biggest markets for ductile pipe. And the U.S. government has put a lot of focus on infrastructure development, which is needed by that country. And you will be happy to note that Electrosteel is the only manufacturer that supplies to the U.S. that exports into the U.S. No other manufacturer is selling into the U.S. other than the local manufacturers.

Regarding your question on the method of manufacturing, well the method of manufacturing can be different, it depends on what is more in abundance in what geography, it does not make a much big difference, but of course producing by the blast furnace route, is not only efficient and cost effective, but is also qualitatively better. So we are positioned well in the U.S. market and going forward, we do expect to maintain similar numbers or improve.

Chetan Phalke — Alpha Invesco Research — Analyst

Okay. So what would be the difference in the cost of production of a U.S. player versus us tentatively, 20%, 30% more than that?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

So it’s difficult to say or comment about the cost of production of other manufacturers and that to in a completely different geography, in which there is a big difference in not only raw material but labor and all sorts of things. So I think it’s better not to compare from that perspective.

Chetan Phalke — Alpha Invesco Research — Analyst

Okay, okay, because sir there is very little information available on the, let’s say, the U.S. consumption or Europe consumption what is the opportunity size. So if you can help us understanding what is the size of the U.S. market and the Europe market and how are they currently procuring their DI pipes? From where are they procuring etc.?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

In the U.S. market as I said is procuring most of its products domestically. Because they have traditionally a strong DI pipe industry and we are the only company from which they are importing. The size of the market is almost 8 lakh tonnes to 9 lakh tonnes, so it’s a huge market, as I said earlier. The European market is more of a replacement market, in the last few years, it has not really grown, but it has maintained in terms of the demand, because it’s more of a replacement market. But recently, there has been a lot of funding coming it from the European Union through the European Commission, a lot of funding has come in because of which there is robust demand also in Europe.

The — in Europe we have a strong manufacturer and a couple of small manufacturers and again in the European market, we are the second most preferred supplier. And probably we are the only company of any significance that is supplying to the European market, other than the local manufacturers.

Chetan Phalke — Alpha Invesco Research — Analyst

Okay. So sir, what gives us this advantage that we are the preferred supplier than other players, let’s say, Tata Metaliks or Welspun despite having capacity you are not able to penetrate into U.S. markets. I mean, is it that we have set up subsidiaries since a very long time that gives us a head-start or it takes a lot of time for regulatory approvals. I mean, what is really making the difference over here?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

You see there are a host of reasons, one is our focus into the export market. Secondly, we shoot our products to local needs. Thirdly, there are certifications involved. Fourthly, as you rightly said, we are present in the market so we have our ears close to the ground. So there are a number of reasons, which is and difficult to attribute what percentage to what reason, but yes we are working hard to remain one of the preferred suppliers in both these premium markets.

Operator

Thank you. [Operator Instructions] Next question is from the line of Vikash Singh from Phillip Capital. Please go ahead.

Vikash Singh — Phillip Capital — Analyst

Thank you for giving me opportunity again. Sir, regarding your capex which you said INR440 crores are yet to be spent, can you bifurcate the FY ’24 than FY ’25 spending?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

It is in the process of deciding how much money will be spent in ’24, how much money it will be paid in ’25, but you can presume 50-50.

Vikash Singh — Phillip Capital — Analyst

Understood, sir. And sir, just one bookkeeping question, can you give us the quarterly volumes for 4Q and 3Q?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Quarterly volume of DI pipe, for Q4, we sold around 193,000 tonnes.

Vikash Singh — Phillip Capital — Analyst

Okay. And that’s for the sequential as well as Y-o-Y number?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Y-o-Y, it was — last financial year, it was 178,000 tonnes.

Vikash Singh — Phillip Capital — Analyst

Okay. And 3Q sir?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Q3, it was 192,000 tonnes.

Vikash Singh — Phillip Capital — Analyst

Understood. Thank you. That’s all from my side.

Operator

Thank you. Next follow-up question is from the line of Aashav Patel from Molecule Ventures. Please go ahead.

Aashav Patel — Molecule Ventures LLP — Analyst

Sir, thank you for the opportunity. Two questions, first of all, do we use pet coke in any of our process, the entire value chain?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

No, we don’t use pet coke, we require coking coal.

Aashav Patel — Molecule Ventures LLP — Analyst

Only coking coal, okay. And sir the last question is regarding that all the mine location, which was done by the government, have you seen any instances where actually the — after the mine is reallocated to someone else, the payment actually flows into the company?

Madhav Kejriwal — Whole-Time Director

Yes please. There have been precedences [Phonetic] of the same.

Aashav Patel — Molecule Ventures LLP — Analyst

Sir, can you please name couple of them?

Madhav Kejriwal — Whole-Time Director

I will have to revert, do you on that, sir? I have not [Indecipherable] with the exact names.

Aashav Patel — Molecule Ventures LLP — Analyst

Sure. And just to know it has been recent. It has been off-late, like over last six or 12 months or it’s been like that for some time now?

Madhav Kejriwal — Whole-Time Director

Sir, I do not have the exact answer to that question. I will have to revert to you on that.

Aashav Patel — Molecule Ventures LLP — Analyst

Sure, no issues sir. I’ll follow up. Thank you. All the best.

Madhav Kejriwal — Whole-Time Director

Thank you very much.

Operator

Thank you. Next question is from the line of Sriram R [Phonetic], an individual investor. Please go ahead.

Sriram R — Private Investor — Analyst

Thank you for the opportunity. My question is on the industry capacity utilization. What is the industry capacity utilization for FY ’23 and how much capacity is coming up for the next couple of years?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Mr. Sriram, approximately total industry capacity should be around close to 3 million tonnes. And this industry is not a fragmented industry. There are very limited number of players [Indecipherable] ones which are operating at near to 100% capacity. Recently, new plant has come up, which is of Welspun Corp, but I’m not sure at what utilization, they are working, not 100% that is sure. And during this financial year, which is going on, I think only maybe 1 lakh tonnes or 2 lakh tonnes might come up, new capacity might come up, not more than that.

Sriram R — Private Investor — Analyst

But you’re saying the existing capacity is running at 100% for all the players, right?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Not all the players, the renowned ones. The other ones, the smaller ones I think are not operating at 100%.

Sriram R — Private Investor — Analyst

Okay, sir. So overall I just want to get a sense like, how much it will be like 80% or —

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Capacity 3 million tonnes, so you can say at around 80%.

Sriram R — Private Investor — Analyst

Okay, okay. Thank you. And sir, just one more question, on Slide number 15, you’ve given that DI pipe is expected to grow at 11% to 13%, so just one more from where you got this data from?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

This is our estimation and this is based on the past trends, if you see data of last five years, 10 years, 15 years, we’ll find that industry has grown at a much more rate than that. And with all the schemes, which are being promoted by the government, would be central government and state government, we are hopeful and this is our internal estimation that this would be kind of growth that we would see in coming years.

Sriram R — Private Investor — Analyst

Okay, that’s very helpful. Thank you.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Thank you.

Operator

Thank you. Next question is from the line of Vijay Agarwal from Federal Bank. Please go ahead.

Vijay Agarwal — Federal Bank — Analyst

Yes sir, just I wanted to know that the company has capital expenditure of INR440 crores and how much — how it will be — then what will be the debt mixture of this capital expenditure?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Mr. Vijay, this would be mostly funded out of our internal sources. And it requires the — the debt is tied-up it requires we might go in for a small debt, but mostly out of internal sources.

Vijay Agarwal — Federal Bank — Analyst

Okay, sir. Thank you.

Operator

Thank you. Next question is from the line of Saket Kapoor from Kapoor and Company. Please go ahead.

Saket Kapoor — Kapoor and Company — Analyst

Yes, sir. Thank you for the opportunity. Sir, in your catchment, we find the line item firstly, the sundry write-off balances are INR29 crores, provision for absolution of inventories to the tune of INR24 crores and provision for regulated reserves and other ways to the tune of INR18 crores, if you could explain the nature of the same. I think the regulated reserve is a line-item that has appeared for this year, it was not — of not — last year there was competitive number.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

So, Mr. Saket, INR28 crores write-off if you remember that has happened in the first quarter, which was on account of our — one of our railway siding.

Saket Kapoor — Kapoor and Company — Analyst

Okay, sir. Our inventories are —

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Which one?

Saket Kapoor — Kapoor and Company — Analyst

Provision for absolution of inventories. We have also absolute inventories to the tune of [Indecipherable] what is the nature of this absolution and why this has occurred? [Indecipherable] And also on the regulatory reserve and other rigs, we have provided for INR18.38 crores.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

You’re talking about the standalone number.

Saket Kapoor — Kapoor and Company — Analyst

Sir, I am talking from the consolidated statement of cash flow.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

INR18.38 crores is on account of the dividend part. As we told that dividend has come in from the subsidiary to the standalone company to Electrosteel India. So it has come out of the reserves. So that is why that number is expecting there.

Saket Kapoor — Kapoor and Company — Analyst

Okay. And for the inventory absolution, sir?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Whatever material — pipe we are selling to the international market, we are selling to subsidiary companies, right. And whatever the stock is lying on the year end at the subsidiaries level and that corporate component has to be logged off in the consolidation level as per the accounting practice.

Saket Kapoor — Kapoor and Company — Analyst

It didn’t get you, sir. Come again, sir, what you are trying to explain.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Mr. Saket.

Saket Kapoor — Kapoor and Company — Analyst

Yes, sir, please.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

We are selling from India to international company, right. International companies are buyer for us, but when we are consolidating the account of subsidiary company with the holding company, whatever the stock — unsold stock is lying in the subsidiary company has to be knocked off with the holding company in the consol result. But whatever unsold pipes are lagging in the subsidiary company level, the profit component has to be knocked off. They knew actual profit.

Saket Kapoor — Kapoor and Company — Analyst

No sir, here it is, here are going for absolution of inventory, this means that these inventories are no longer needed. So this is the explanation for it?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

We will come back to you Mr. Saket, you will get a phone call from me.

Saket Kapoor — Kapoor and Company — Analyst

Okay, sir. And lastly about the share application pending. Madhavji, If you could give us some color, what is the timelines from this promoter and of putting up the balance 75%? And also one question to CFO sir about the ICD closing balance. What is the closing balance as on 31st March for the ICD that we generally used to give?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

ICD, balance as on total is INR9 crores only and that will be — we are hopeful that it would come on time, hopefully by June end. And all the money already came back.

Saket Kapoor — Kapoor and Company — Analyst

And we will discontinue also with this business of ICD?

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Yeah, yeah.

Saket Kapoor — Kapoor and Company — Analyst

Correct, sir. And Madhavji, if you could give us some timeline on the pending amount, on the share application money?

Madhav Kejriwal — Whole-Time Director

Sir the timeline for the remainder of the money for the share application is around 18 months from the date of issue.

Saket Kapoor — Kapoor and Company — Analyst

Yes, sir.

Madhav Kejriwal — Whole-Time Director

So in that due course of time, we will be infused in the remainder of the capital.

Saket Kapoor — Kapoor and Company — Analyst

Okay sir. And for the value-creation idea sir, what is your thought process sir and what steps should be taken going at so that investors value to be created? You can understand from the market capitalization and the way market for [Indecipherable] company. So what is your thought process and what steps are you taking to reward your shareholders who have been there in the thick and thin times, good and bad times with the company?

Madhav Kejriwal — Whole-Time Director

Sir, I think there are two parts the answer to that question. With the compensation of the coal mine coming in and with the [Indecipherable] of the capital expenditure that the company is undertaking this year, next year, which will take us to 9 lakh tonnes, I think there will be good value creation from both these exercises for the organization. And in regard to the shareholders, I think we have announced — we’ve announced a dividend of 90% this year, which is more by 10% from the last two years and we are hoping to continue with that going forward.

Operator

Thank you. Next question is from the line of Miraj [Phonetic] from Merion Capital. Please go ahead.

Miraj — Merion Capital — Analyst

Hi, thank you for taking my question. I just had one clarification. In one of the answer to the earlier participants, you mentioned a figure of 8 lakh to 9 lakh tonnes of market in U.S. If you could just explain, I somehow missed — misunderstood something. If you could just explain that again.

Madhav Kejriwal — Whole-Time Director

So that is the size of the market in the U.S. The American market annually demands approximately 8 lakh tonnes to 9 lakh tonnes of DI pipes. So that is what I said in terms of the demand in the American market.

Miraj — Merion Capital — Analyst

Okay, understood. And if the 8 lakh tonnes to 9 lakh tonnes is annually required, would you be able to tell us what the market size would be in U.S. a rough figure if we have any.

Madhav Kejriwal — Whole-Time Director

Sorry, come again. Could you please repeat the question?

Miraj — Merion Capital — Analyst

The size of the market in U.S.

Madhav Kejriwal — Whole-Time Director

So this is what I said that is the size of the market in the U.S. I mean the demand of ductile pipe in the U.S. is the size of the market in the U.S.

Miraj — Merion Capital — Analyst

Okay, okay. Got it, okay. Thank you.

Operator

Thank you. Next question is from the line of Sriram R, individual investor. Please go ahead.

Sriram R — Private Investor — Analyst

Yeah. thank you for the opportunity. Sir, just continuing the question asked by the other participant on the shareholder value creation, if I look at your numbers like 7% ROE and we are operating at 100% plus capacity. So like what is your target ROE two years from here on and what are the steps that are going to be taken to improve this?

Madhav Kejriwal — Whole-Time Director

Hi, Sriram. So, point one on ROE, see you have to look at adjusted ROE because our compensation which is yet to commence is also being used for calculation of ROE, which is impacting the ratio. So if you see adjusted ROE, it will be around 11%. And with the expansions that are happening in the coming years, definitely the profitability would increase and the return ratios would appear much better.

Sriram R — Private Investor — Analyst

This is on account of you’re saying purely capacity.

Madhav Kejriwal — Whole-Time Director

Right.

Sriram R — Private Investor — Analyst

Okay. Thank you, sir. All the best.

Operator

Thank you. Next question is from the line of Kumar Keswani from Strategic Advisory. Please go ahead.

Kumar Keswani — Strategic Advisory — Analyst

Hi, good evening. The question so we should be looking at standalone and not consolidated accounts. Given that all the export sales of the companies are voted via the subsidiaries, I think it’s important for us to look at consolidated and not individual accounts, number one. And number two is that from a company’s perspective, the point about shareholder value creation of [Indecipherable] we did it to the company to look at it and I think this is one area that we should look at because as investors, we look at consolidated accounts, given that there’s a lot of intra company sales?

Madhav Kejriwal — Whole-Time Director

Your point is correct, but point is that, whatever the subsidiary company is getting the material, the pipes, which all are exported from India only. So we have already considered the export in Indian balance sheet, Indian accounts. Same thing is getting as quoted through full domestically in the international market. That is why we were suggesting in all the bankers or the investors are considering standalone balances for the valuation purpose, if you want to consider consol, we have no objection that you can consider. But for better valuation, it is advisable to consider standalone.

Ashutosh Agarwal — Whole-time Director and Chief Financial Officer

Mr. Keswani, the idea is — ECL India as a manufacturing company. And so you will have to do valuation for a manufacturing company based on the standalone numbers and our subsidiaries are getting down, they are nothing but marketing arms, which are supporting for selling of our products. So then if you take consol, you are basically missing a manufacturing company, with the trading company. And that is why we are suggesting you to consider standalone numbers because that will give you a better picture of the business.

Kumar Keswani — Strategic Advisory — Analyst

No, I completely understand the point that has been made and responding to the comments that form a company perspective, the moment you get into consol numbers, common entry is clustered. One of the people on the call went into great depth to explain why the raw material movement in prices have to be knocked down and as a result of which, there was a line item in the balance sheet. The point I’m making is that, as an investor, the moment you are doing sales from one entity to another, it’s always better for the company as well to start looking at consolidated accounts and try and work towards that picture, because one of the manufacturing arm and other is a sales arm, you need to look at it together, not individually.

Madhav Kejriwal — Whole-Time Director

Well, Mr. Keswani, I would like to as a matter of information, tell you that the subsidiaries, the trading arms that Gaurav was talking about have done record profits in this financial year. They have done much better than any of the earlier financial years. So, now considering the adjustments that have to be made, the numbers look a bit skewed. But once you have the detailed balance sheets going forward, you will be able to see it, whatever way you want.

Kumar Keswani — Strategic Advisory — Analyst

Okay.

Operator

Thank you very much. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Madhav Kejriwal — Whole-Time Director

I would like to thank all the market participants and we look forward to a good year ahead. Demand is robust. We are well equipped in terms of market position. With that, I would like to conclude this year’s earnings con call. Thank you very much. [Operator Closing Remarks]